Surge In Shipping Rates Temporary - Growth Hopes Dashed (Again)

The Baltic Dry Index fell 3.2% today, and 4% in the last 2 days, the most in 3 months; and Capesize (the more frequently cited containers for iron-ore) plunged 6.8% to $38,023 (from highs of $42,211 a day just 2 days ago). Despite the mainstream media's seeming obsession with these indicators (when they rise only - not when they fall), illuustrated recently by Jim Cramer's diatribe on why the Baltic Dry's spike means that all is well in the world again, as Bloomberg notes, the biggest rally in freight costs since 2009 is temporary because there's still huge ship glut. Brazil’s iron-ore producers accelerated exports of the commodity in July and August, compensating for shipments that slumped to a two-year low in June, but the expansion in cargoes won't continue to grow at this pace.


Via Bloomberg,

"I can’t see that underlying demand can sustain the massive fleet,” Svenning said. “There was a massive tsunami of delivery of new vessels in 2009. The market will come off again.”


Svenning's estimate for the fourth quarter is for rates to average about $19,000 a day, 34 percent below freight swaps that investors use to bet on, or hedge, future shipping prices.


We use Baltic Dry illustratively here (since Capesize data is unavailable historically) but it is clear Freight-swaps are already pricing in a slide in rates (and it would appear spot prices are rapidly collapsing to those levels)...



Chart: Bloomberg